**United StatesSecurities and Exchange Commission**

**Washington,D.C. 20549**

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**FORM 10-Q**

**x**                              QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934

**Forthe quarterly period ended March 31, 2007**

**CommissionFile Number: 001-14568**

**IPSCO Inc.**

(Exact name of registrantas specified in its charter)

**CANADA**

(State or otherjurisdiction of incorporation or organization)

**98-0077354**

(I.R.S. EmployerIdentification No.)

**650 Warrenville Road, Suite 500,Lisle, Illinois 60532Telephone: (630)-810-4800**

(Address and telephonenumber of principal executive offices)

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.

x Yes   o No

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer   x | Accelerated filer   o | Non-accelerated filer   o |
|---------------------------------------|---------------------------------|-------------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

APPLICABLE ONLY TO ISSUERSINVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEEDING FIVE YEARS:

Indicate by check mark whether the registrant hasfiled all documents and reports to be filed by Sections 12, 13 or 15(d) ofthe Securities Exchange Act of 1934 subsequent to the distribution ofsecurities under a plan confirmed by a court.

o Yes   o No

Thenumber of shares of common stock outstanding as of April 30, 2007 is47,216,092.

 

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**PART I—FINANCIALINFORMATION**

**Item 1.**                        FinancialStatements.

**IPSCO Inc.CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)**(thousandsof United States Dollars except for per share and ton data)

| ** **                                              | ** **    | **For the Three Months Ended** | ** ** |
|---------------------------------------------------------|---------------|----------------------------------------------------|------------|
| ** **                                              | ** **    | **Mar 31  2007**                              | ** ** | **Mar 31  2006** | ** ** |
| Plate and Coil  Tons Produced (thousands)               |          | 829.8                                              |       | 895.6 |   |
| Finished Tons  Shipped (thousands)                      |          | 1,073.3                                            |       | 1,005.4 |   |
| Sales                                                   |          | $                                                  | 1,031,686  |   | $ | 902,896 |   |
| Cost of sales                                           |          | 803,470                                            |       | 623,429 |   |
| Gross income                                            |          | 228,216                                            |       | 279,467 |   |
| Selling, general  and administration                    |          | 48,743                                             |       | 32,386 |   |
| Operating income                                        |          | 179,473                                            |       | 247,081 |   |
| Other expenses (income):                                |          |                                               |       |   |   |
| Interest on long-term debt                              |          | 16,124                                             |       | 5,833 |   |
| Net interest income                                     |          | (1,855                                             | )          | (7,015 | ) |
| Foreign exchange loss                                   |          | 933                                                |       | 1,324 |   |
| Other                                                   |          | (373                                               | )          | (112 | ) |
| Income Before  Income Taxes                             |          | 164,644                                            |       | 247,051 |   |
| Income Tax  Expense                                     |          | 55,201                                             |       | 96,350 |   |
| Net Income                                              |          | 109,443                                            |       | 150,701 |   |
| Cumulative translation adjustment                       |          | (3,713                                             | )          | 1,226 |   |
| Change in fair value of derivatives, net of tax         |          | (2,205                                             | )          | (5,398 | ) |
| Comprehensive  income                                   |          | $                                                  | 103,525    |   | $ | 146,529 |   |
| Earnings per Common Share                | —Basic   |                                               | $          | 2.33 |   | $ | 3.15 |   |
|                                                    | —Diluted |                                               | $          | 2.30 |   | $ | 3.12 |   |
| Dividends  Declared per Common Share (Canadian dollars) |          | $                                                  | 0.20       |   | $ | 0.18 |   |

 

**IPSCO Inc.CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (unaudited)**(thousandsof United States Dollars)

| ** **                                | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                | ** ** | **Mar 31  2007**                              | ** ** | **Mar 31  2006** | ** ** |
| Retained Earnings  at Beginning of Period |       | $                                                  | 1,875,067  |   | $ | 1,341,659 |   |
| Net Income                                |       | 109,443                                            |       | 150,701 |   |
| Dividends on Common Shares                |       | (8,087                                             | )          | (7,450 | ) |
| Retained Earnings at End  of Period       |       | $                                                  | 1,976,423  |   | $ | 1,484,910 |   |

 

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**IPSCO Inc.CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)**(thousandsof United States Dollars)

| ** **                                                                       | ** ** | **For the Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                       | ** ** | **Mar 31  2007**                              | ** ** | **Mar 31  2006** | ** ** |
| Operating Activities                                                             |       |                                               |       |   |   |
| Net income                                                                       |       | $                                                  | 109,443    |   | $ | 150,701 |   |
| Adjustments to  reconcile net income to net cash flows from operating activities |       |                                               |       |   |   |
| Stock-based compensation                                                         |       | 2,489                                              |       | 1,237 |   |
| Depreciation of capital assets                                                   |       | 26,788                                             |       | 20,083 |   |
| Amortization of intangible assets                                                |       | 14,428                                             |       | — |   |
| Amortization of deferred charges                                                 |       | 1,271                                              |       | 461 |   |
| Deferred income taxes                                                            |       | (18,475                                            | )          | 804 |   |
| Changes in  operating assets and liabilities                                     |       |                                               |       |   |   |
| Accounts receivable, less allowances                                             |       | 47,129                                             |       | (12,725 | ) |
| Inventories                                                                      |       | 84,053                                             |       | (43,356 | ) |
| Other                                                                            |       | 10,932                                             |       | 1,435 |   |
| Accounts payable and accrued charges                                             |       | 9,190                                              |       | (27,708 | ) |
| Change in pension liability                                                      |       | (795                                               | )          | (178 | ) |
| Income taxes payable                                                             |       | 62,770                                             |       | 29,352 |   |
| Net cash provided  by operations                                                 |       | 349,223                                            |       | 120,106 |   |
| Investing  Activities                                                            |       |                                               |       |   |   |
| Expenditures for capital assets                                                  |       | (55,194                                            | )          | (30,599 | ) |
| Other                                                                            |       | —                                             |       | (94 | ) |
| Acquisition of business                                                          |       | (2,281                                             | )          | — |   |
| Net cash used for  investing activities                                          |       | (57,475                                            | )          | (30,693 | ) |
| Financing  Activities                                                            |       |                                               |       |   |   |
| Common share dividends                                                           |       | (8,087                                             | )          | (7,450 | ) |
| Common shares issued pursuant to share option plan                               |       | 45                                                 |       | 447 |   |
| Repayment of operating line                                                      |       | (44,821                                            | )          | — |   |
| Repayment of long-term debt                                                      |       | (10,302                                            | )          | (4,991 | ) |
| Net cash used for  financing activities                                          |       | (63,165                                            | )          | (11,994 | ) |
| Effect of  exchange rate changes on cash and cash equivalents                    |       | 333                                                |       | 2,841 |   |
| Increase in Cash  and Cash Equivalents                                           |       | 228,916                                            |       | 80,260 |   |
| Cash and Cash Equivalents  at Beginning of Period                                |       | 34,377                                             |       | 583,064 |   |
| Cash and Cash  Equivalents at End of Period                                      |       | $                                                  | 263,293    |   | $ | 663,324 |   |

 

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**IPSCO Inc.CONSOLIDATED BALANCE SHEETS (unaudited)**(thousands ofUnited States Dollars)

| ** **                                       | ** ** | **Mar 31  2007** | ** ** | **Dec 31  2006** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| Current Assets                                   |       |                  |       |                  |       |
| Cash and cash equivalents                        |       | $                     | 263,293    |                  | $          | 34,377 |   |
| Accounts receivable, less allowances             |       | 405,552               |       | 449,736               |       |
| Inventories                                      |       | 815,157               |       | 896,477               |       |
| Income taxes recoverable                         |       | —                |       | 30,031                |       |
| Deferred income taxes                            |       | 46,930                |       | 40,689                |       |
| Other                                            |       | 18,485                |       | 28,703                |       |
|                                             |       | 1,549,417             |       | 1,480,013             |       |
| Non-Current  Assets                              |       |                  |       |                  |       |
| Capital assets                                   |       | 1,337,644             |       | 1,313,517             |       |
| Goodwill and other intangible assets             |       | 1,290,684             |       | 1,298,144             |       |
| Other                                            |       | 38,293                |       | 40,079                |       |
|                                             |       | 2,666,621             |       | 2,651,740             |       |
| Total Assets                                     |       | $                     | 4,216,038  |                  | $          | 4,131,753 |   |
| Current  Liabilities                             |       |                  |       |                  |       |
| Bank indebtedness                                |       | $                     | —     |                  | $          | 45,000 |   |
| Accounts payable and accrued charges             |       | 357,583               |       | 354,207               |       |
| Income and other taxes payable                   |       | 32,737                |       | —                |       |
| Current portion of long-term debt                |       | 35,212                |       | 33,379                |       |
|                                             |       | 425,532               |       | 432,586               |       |
| Long-Term  Liabilities                           |       |                  |       |                  |       |
| Long-term debt                                   |       | 867,667               |       | 879,675               |       |
| Other                                            |       | 75,040                |       | 68,639                |       |
| Deferred income taxes                            |       | 478,190               |       | 491,052               |       |
|                                             |       | 1,420,897             |       | 1,439,366             |       |
| Shareholders’  Equity                       |       |                  |       |                  |       |
| Common shares                                    |       | 414,979               |       | 414,934               |       |
| Contributed surplus                              |       | 27,520                |       | 25,031                |       |
| Retained earnings                                |       | 1,976,423             |       | 1,875,067             |       |
| Accumulated other comprehensive loss             |       | (49,313               | )          | (55,231               | )          |
|                                             |       | 2,369,609             |       | 2,259,801             |       |
| Total Liabilities and  Shareholders’ Equity |       | $                     | 4,216,038  |                  | $          | 4,131,753 |   |

 

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**IPSCOInc.NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)**(thousandsof United States Dollars)

1.                 These unauditedconsolidated financial statements have been prepared on a basis consistent withthose used in the preparation of the statements and notes thereto filed withthe Securities and Exchange Commission in the Company’s 2006 Annual Report on Form 10-K.In the opinion of the Company, the information furnished herein reflects allknown accruals and adjustments necessary for a fair statement of the resultsfor the periods reported herein. All such adjustments are of a normal recurringnature. These interim results are not necessarily indicative of expectedresults for the year.

The Company files tax returns for Canadian federal andprovincial jurisdictions and U.S. federal and state jurisdictions. The CanadaRevenue Agency has completed examinations of the Canadian tax returns up to andincluding the taxation year ended December 31, 2002. They will begin anexamination of the Canadian tax returns for the periods ending December 31,2003, 2004, and 2005 beginning in the second quarter of 2007 and expected to becompleted by the end of 2008. The Internal Revenue Service in the United Stateshas completed examinations for the taxation year ending December 31, 1999.The U.S. federal tax returns are closed through December 31, 2002 due tothe lapsing of the statute of limitations except for certain net operatinglosses that were utilized after this date.

The Company adopted the provisions of FASBInterpretation No. 48, *Accounting for Uncertaintyin Income Taxes*, on January 1, 2007. In the Balance Sheet, theCompany has an $11 million liability recorded for unrecognized taxbenefits at January 1, 2007, including interest and penalties of $2 million.The Company recognizes interest and penalties related to unrecognized taxbenefits as a component of tax expense. The total amount of unrecognized taxbenefits which, if recognized, would affect tax expense is $11 million.However, the Company does not anticipate that the total amount of unrecognizedtax benefit will materially change within the next 12 months. The Companydid not record any adjustment to its January 1, 2007 opening retainedearnings balance as a result of the adoption of FASB Interpretation No. 48.

2.                 Inventories

| ** **      | ** ** | **Mar 31  2007** | ** ** | **Dec 31  2006** | ** ** |
|-----------------|------------|-----------------------|------------|-----------------------|------------|
| Finished goods  |       | $                     | 324,608    |                  | $          | 340,816 |   |
| Work-in-process |       | 263,504               |       | 344,330               |       |
| Raw materials   |       | 115,136               |       | 103,544               |       |
| Supplies        |       | 111,909               |       | 107,787               |       |
|            |       | $                     | 815,157    |                  | $          | 896,477 |   |

 

3.                 Pensions

Pensioncost attributable to the Company’s pension plans is as follows:

| ** **                                           | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                           | ** ** | **Mar 31  2007**                              | ** ** | **Mar 31  2006** | ** ** |
| Defined benefit plans                                |       |                                               |       |   |   |
| Service cost                                         |       | $                                                  | 2,158      |   | $ | 2,059 |   |
| Interest cost                                        |       | 3,267                                              |       | 3,166 |   |
| Expected return on plan assets                       |       | (3,568                                             | )          | (3,201 | ) |
| Amortization of gains, losses and past service costs |       | 1,246                                              |       | 1,552 |   |
|                                                 |       | 3,103                                              |       | 3,576 |   |
| Defined  contribution plans                          |       | 1,847                                              |       | 1,650 |   |
|                                                 |       | $                                                  | 4,950      |   | $ | 5,226 |   |

 

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4.                 Earningsper share

Basicearnings per share is calculated by dividing net income available to commonshareholders by the weighted average number of common shares outstanding.Diluted earnings per share is calculated by dividing net income by the weightedaverage shares outstanding plus share equivalents that would arise from theexercise of share options, deferred share units, restricted shares andperformance units. The per share amounts disclosed are based on the following:

| ** **                                          | ** ** | **For the Three Months Ended** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                          | ** ** | **Mar 31  2007**                              | ** ** | **Mar 31  2006** | ** ** |
| Numerator for  basic and diluted earnings per share |       | $                                                  | 109,443    |   | $ | 150,701 |   |
| Common shares outstanding—March 31        |       | 47,215,092                                         |       | 48,073,019 |   |
| Non-vested  restricted shares                       |       | (163,884                                           | )          | (210,003 | ) |
| Weighted average  impact of shares issued           |       | (833                                               | )          | (9,610 | ) |
| Denominator for  basic earnings per share           |       | 47,050,375                                         |       | 47,853,406 |   |
| Adjustment for  share options                       |       | 81,907                                             |       | 97,884 |   |
| Adjustment for  deferred share units                |       | 123,298                                            |       | 116,569 |   |
| Adjustment for  restricted shares                   |       | 93,161                                             |       | 129,607 |   |
| Adjustment for  performance units                   |       | 229,204                                            |       | 152,931 |   |
| Denominator for diluted  earnings per share         |       | 47,577,945                                         |       | 48,350,397 |   |
|                                                     |            |                                                    |            |  |  |  |  |

 

The Company issued 1,500 and 21,400 common shares inthe quarters ended March 31, 2007 and 2006, respectively, as a result ofoption exercises.

5.                 StockBased Compensation

The Company has an incentive share plan under whichcommon shares are reserved for directors, officers and employees. As of March 31,2007 and March 31, 2006, shares available for future grants are 599,149and 728,364, respectively. The restricted shares and performance units vest atthe end of three years based on continued employment and achievement of certainCompany performance objectives. Restricted shares are entitled to dividendsdeclared on common shares during the vesting period and, upon vesting,performance units are entitled to an amount equal to dividends declared duringthe vesting period. The fair value of the grants is being amortized tocompensation expense over the vesting period. For the quarters ended March 31,2007 and March 31, 2006 compensation expense of $5,838 and $8,936 has beenrecorded, respectively.

6.                 IncomeTaxes

During the quarter ended March 31, 2007, theCompany calculated its estimated annual effective income tax rate to be 33.5%compared to the prior year rate of 35.8%. The decrease is due to the benefitthat is expected to be received from tax planning strategies implemented at thetime of the acquisition of NS Group on December 1, 2006. The 33.5% ratefor the quarter ended March 31, 2007 as compared to the 39% effective ratefor the quarter ended March 31, 2006 reflects the fact that the Companynow estimates that all of its unremitted earnings from the U.S. operationswould be permanently reinvested and the Company is no longer required to recorda liability for withholding tax payments on repatriation of the funds. Inaddition, the first quarter 2006 tax rate reflected an expense for the impactof rate changes on the opening deferred tax balances as a result of increasesin the effective tax rate of the U.S. operations. Finally, the deduction forthe manufacturing and processing activities in the U.S. increased from 3% to 6%resulting in a lower tax rate for the first quarter of 2007 as compared to thefirst quarter of 2006.

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7.                 SegmentedInformation

The Company is organized and managed as a singlebusiness segment, being steel products, and the Company is viewed as a singleoperating segment by the chief operating decision maker for the purposes ofresource allocation and assessing performance.

Financialinformation on the Company’s geographic areas follows. Sales are allocated tothe country in which the third party customer receives the product.

| ** **    | ** ** | **For the Three Months Ended** | ** ** |
|---------------|------------|----------------------------------------------------|------------|
| ** **    | ** ** | **Mar 31  2007**                              | ** ** | **Mar 31  2006** | ** ** |
| Sales         |       |                                               |       |   |   |
| Canada        |       | $                                                  | 297,793    |   | $ | 340,833 |   |
| United States |       | 733,893                                            |       | 562,063 |   |
|          |       | $                                                  | 1,031,686  |   | $ | 902,896 |   |

 

| ** **                   | ** ** | **Mar 31  2007** | ** ** | **Dec 31  2006** | ** ** |
|------------------------------|------------|-----------------------|------------|-----------------------|------------|
| Capital assets and  goodwill | ** ** | ** **            | ** ** | ** **            | ** ** |
| Canada                       |       | $                     | 232,420    |                  | $          | 217,309 |   |
| United States                |       | 1,707,699             |       | 1,694,518             |       |
|                         |       | $                     | 1,940,119  |                  | $          | 1,911,827 |   |

 

| ** **                                         | ** ** | **For the Three Months Ended** | ** ** |
|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                         | ** ** | **Mar 31  2007**                              | ** ** | **Mar 31  2006** | ** ** |
| Sales information  by product group is as follows: |       |                                               |       |   |   |
| Steel mill products                                |       | $                                                  | 499,465    |   | $ | 504,213 |   |
| Tubular products                                   |       | 532,221                                            |       | 398,683 |   |
|                                               |       | $                                                  | 1,031,686  |   | $ | 902,896 |   |

 

Tubular product sales volume in the first and secondquarters can be negatively impacted by weather conditions in Western Canada.

8.                 BusinessCombination

On December 1, 2006, the Company acquired 100% ofthe common shares of NS Group, Inc. a manufacturer of seamless and weldedoilfield tubular goods, for $66 per share in cash. The total value of thetransaction including acquisition costs, and net of cash acquired ofapproximately $66,000, was $1,428,029. NS Group is now a wholly-ownedsubsidiary and the results of NS Group’s operations have been included in theconsolidated financial statements since the December 1, 2006 acquisitiondate.

During the quarter ending March 31, 2007, theCompany continued to refine the purchase price asset allocation resulting in a$6.8 million reduction of capital assets, $2.8 million increase ofcustomer relationships, $2.2 million decrease of long-term deferred taxliability and $1.8 million increase in goodwill. In addition, a workingcapital adjustment related to the purchase of Ultra Premium Oilfield Servicesby NS Group, Inc. was recorded resulting in additional goodwill of $2.3 million.

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Thefollowing pro forma consolidated results of operations assume the acquisitionof NS Group was completed as of the beginning of the period being reported on.Pro forma data may not be indicative of the results that would have beenobtained had the acquisition actually occurred at the beginning of the periodpresented, or of results which may occur in the future.

| ** **                 | ** ** | **For the Three Months Ended** | ** ** |
|----------------------------|------------|----------------------------------------------------|------------|
| ** **                 | ** ** | **Mar 31  2006**                              | ** ** |
| Sales                      |       |                                               | $          | 1,093,354 |   |   |
| Net income                 |       |                                               | $          | 134,628 |   |   |
| Earnings per  common share |       |                                               |       |   |   |
| Basic                      |       |                                               | $          | 2.81 |   |   |
| Diluted                    |       |                                               | $          | 2.78 |   |   |

 

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**Item 2.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations.

**Forward-LookingStatements**

Statements made in this report that are not statementsof historical fact are “forward-looking statements” within the meaning of Section 21Eof the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Forward-looking statements include, without limitation, any statements that mayproject, indicate or imply future results, events, performance or achievementsand can be identified bythe use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,”“seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” orthe negative of these terms or other comparable words, or by discussions ofstrategy, plans or intentions.

Forward-looking information reflects management’scurrent views of future events and financial performance that involve a numberof risks and uncertainties. The factors that could cause actual results todiffer materially include, but are not limited to, the following: (1) generaleconomic conditions; (2) changes in financial markets; (3) politicalconditions and developments, including conflict in the Middle East and the waron terrorism; (4) changes in the supply and demand for steel and ourspecific steel products; (5) the level of demand outside of North Americafor steel and steel products; (6) equipment performance at ourmanufacturing facilities; (7) the occurrence of any material lawsuits; (8) theavailability of capital; (9) our ability to properly and efficiently staffour manufacturing facilities; (10) domestic and international competitivefactors, including the level of steel imports into the Canadian and U.S.markets; (11) economic conditions in steel exporting nations; (12) tradesanction activities and the enforcement of trade sanction remedies; (13) supplyand demand for scrap steel and iron, alloys and other raw materials; (14) supply,****demand and pricing for the electricity andnatural gas that we use; (15) changes in environmental and otherregulations, including regulations arising from the Canadian Parliament’sratification of the Kyoto Protocol, and the magnitude of future environmentalexpenditures; (16) inherent uncertainties in the development andperformance of new or modified equipment or technologies; (17) NorthAmerican interest rates; and (18) exchange rates.

This list is not exhaustive of the factors that mayimpact our forward-looking statements. These and other factors should beconsidered carefully and users should not place undue reliance on ourforward-looking statements. As a result of the foregoing and other factors, noassurance can be given as to any such future results, levels of activity orachievements and neither we nor any other person assumes responsibility for theaccuracy and completeness of these forward-looking statements.

We refer you to thesections captioned “Statement Regarding Forward-Looking Information” and “RiskFactors” in our Annual Report on Form 10-K for the year ended December 31,2006, incorporated herein by reference, for a more detailed discussion of someof the many factors, variables, risks, and uncertainties that could causeactual results to differ materially from those we may have expected oranticipated. We caution that any forward-looking statement reflects only ourreasonable belief at the time the statement is made. The Company undertakes noobligation to publicly update forward-looking statements, whether as a resultof new information, future events or otherwise. You are advised, however, toconsult any further disclosures the Company makes on related subjects as may bedetailed in our other filings made from time to time with the Securities andExchange Commission.

**General**

The following discussionand analysis presents factors which affected the Company’s consolidated resultsof operations for the three-month periods ended March 31, 2007 and March 31,2006, and the Company’s consolidated financial position at March 31, 2007.We continue to operate and report our business as a single business segment.The following information should be read in conjunction with the ConsolidatedFinancial Statements and Notes thereto included in this Form 10-Qand in the Company’s Form 10-K for the year-ended December 31,2006. As used in this report, IPSCO Inc. and its subsidiaries, unless otherwisespecified, are collectively referred to as “IPSCO” or the “Company”, and unlessthe context otherwise requires, the terms “we”, “us”, “our” and similarreferences refer to the Company.

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**Recent Developments**

**Pending Arrangement**

On May 3, 2007, the Company, SSAB Svenskt StålAB, a corporation existing under the laws of Sweden (“SSAB”) and SSAB CanadaInc., a wholly owned subsidiary of SSAB and a corporation existing under thelaws of Canada (“Acquisition Sub”), entered into an Arrangement Agreement (the“Arrangement Agreement”). The Arrangement Agreement provides that, upon theterms and subject to the conditions set forth in the Arrangement Agreement,Acquisition Sub will acquire all of the outstanding common shares of IPSCO forcash at a price per share of $160.00 (the “Purchase Price”), to be implementedby way of a court-approved plan of arrangement (the “Arrangement”).

At the effective time of the Arrangement, we willbecome a wholly owned subsidiary of SSAB and each common share of IPSCO (otherthan shares held by (i) any shareholders who properly exercise dissentrights under Canadian law or (ii) SSAB, Acquisition Sub or any of theiraffiliates) will be transferred to Acquisition Sub in consideration for thePurchase Price.

Consummation of the Arrangement is subject tocustomary conditions, including IPSCO shareholder approval, court approval,expiration or termination of the applicable Hart-Scott-Rodino waiting periodand similar antitrust laws in Canada, and receipt of certain other regulatoryapprovals, including under the Investment Canada Act.

The Arrangement Agreementcontains certain termination rights for both IPSCO and SSAB, and furtherprovides that, upon termination of the Arrangement Agreement under specifiedcircumstances, we may be required to pay SSAB a termination fee of 3.0% of theaggregate Purchase Price. The Arrangement Agreement additionally provides that upontermination of the Arrangement Agreement under specified circumstances, we maybe required to reimburse SSAB for expenses incurred by SSAB in connection withthe transactions contemplated by the Arrangement Agreement in an amount not toexceed $10 million.

**Overview: FirstQuarter Operating Results 2007 vs. 2006**

First quarter 2007 sales were a record $1,031.7 million,$128.8 million or 14.3% higher than the $902.9 million reported inthe first quarter of 2006. Steel mill product revenue of $499.5 milliondecreased $4.7 million from the first quarter 2006. The decrease in steelmill product sales were primarily due to inventory reduction efforts by servicecenters and a scheduled maintenance outage at our Mobile steelmaking facility.Tubular product sales of $532.2 million increased $133.5 million or33.5% from the same quarter last year. The increase resulted from thecombination of the addition of shipments related to the NS Group, Inc. (“NSG”)acquisition and an increase in large diameter shipments.

For the quarter, we shipped a record 1,073,000 tons offinished products, up 68,000 tons or 6.7% from the 1,005,000 tons reported lastyear. Steel mill product shipments in the first quarter of 649,000 tons were9,000 tons or 1.4% lower than the prior year. Tubular products had recordshipments in the first quarter of 424,000 tons, 77,000 tons or 22.3% higherthan 347,000 tons in last year’s first quarter. Energy tubular shipments of272,000 tons, and large diameter pipe shipments of 89,000 tons were 63,000 and10,000 tons greater than the same period last year, respectively.

Plate and coil tons produced in the first quarter of2007 of 830,000 tons were 66,000 tons less than the prior year. The Mobilemaintenance shutdown was the primary reason for the decrease.

Gross income for the quarter was $228.2 million adecline of $51.3 million from the first quarter of last year. The lowergross income is the result of the amortization of the remaining $24 millionfair value increment allocated to NSG inventory, higher scrap costs, expensesrelated to the Mobile maintenance outage, and higher tubular product costs.

The average per ton cost of scrap consumed in thefirst quarter of 2007 increased 8% from the first quarter of 2006. Aggregateconversion costs for the three steelworks were 4% higher than the same periodlast year due to 

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increases in scrap,alloys, energy and maintenance costs. We supply the majority of steel inputneeded to make tubular product and any additional coil needed for tubularproduction is purchased externally. The increase in the cost of steel produced,as well as the increase in the cost of purchased coil, has driven averagetubular costs higher year over year. The average cost per ton of all productsold increased to $749 per ton, $129 per ton higher than the same quarter lastyear, of which $29 per ton relates to the inventory and capital asset fairvalue amortization. Increases in scrap, steel mill product conversion costs,increases in the costs of purchased coil, and a higher cost sales mix due toincreased large diameter pipe sales and the inclusion of seamless product costsin the first quarter of 2007 were other factors which contributed to theaverage product cost increase.

Selling, general and administrative expenses were$48.7 million during the first quarter of 2007, as compared to $32.4 millionduring the same period in 2006, an increase of $16.3 million. Amortizationof intangibles related to the NSG acquisition were $14.4 million.Excluding the amortization of intangibles, expenses increased $1.9 million,or 6% over first quarter 2006. Expense due to share price appreciation was $7.4 millionin the first quarter 2007 compared to $4.7 million in first quarter 2006.Selling, general and administrative expenses , including the amortization ofintangibles related to NSG are 5% of sales. Exclusive of this amortization,SG&A represented 3% of sales compared to 4% in 2006.

Operating income per ton in the first quarter was $167per ton compared to $246 per ton in the prior period as amortization expense ofthe fair value increment relating to the tangible and intangible assetsacquired in the NSG acquisition reduced operating profit by $36 per ton,increased cost of scrap was $23 per ton, and costs related to the Mobilemaintenance outage were $9 per ton.

Interest expense on long-term debt was $16.1 million,compared to $5.8 million in the first quarter of 2006. This increase inthe first quarter 2007 as compared to first quarter 2006 is primarily theresult of long-term financing related to the acquisition of NSG. Interestincome declined to $1.9 million from $7.0 million in the prior periodreflecting the significant use of cash balances in December of 2006 forthe NSG acquisition.

Changes in the Canadian to U.S. dollar exchange ratescan impact reported earnings. The first quarter 2007 foreign exchange loss was$0.9 million compared to a loss in 2006 of $1.3 million.

The effective tax rate was 33.5% compared to 39%recorded in the first quarter of 2006. In the first quarter of 2006, we hadrecorded a tax liability for the portion of our earnings in the U.S. that werenot expected to be permanently reinvested in order to reflect the futurewithholding tax payments on repatriation of the funds. In the first quarter of2007, we have estimated that all of our un-remitted earnings from the U.S.operations will be permanently reinvested. The first quarter 2006 tax ratereflected an additional liability for the impact of effective tax rate changeson deferred tax balances as the result of increases in the effective tax rateof the U.S. operations. The Company has adopted tax planning strategies inconjunction with the NSG acquisition which reduce the effective tax rate byapproximately 2%. Finally, the deduction rate for the manufacturing andprocessing activities in the U.S. increased from 3% to 6% resulting in a lowertax rate for the first quarter of 2007 as compared to the first quarter 2006.

Net income for the firstquarter of 2007 was $109.4 million or $2.30 per diluted share compared to$150.7 million or $3.12 per diluted share during first quarter of 2006.The decrease in net income during 2007 was due to factors described above. Thedenominator used in the earnings per share calculation was 47.6 millionshares in the first quarter of 2007 compared to 48.3 million shares in thefirst quarter of 2006.

**Outlook**

Solid end user demand for our steel mill products iscontinuing while service centers returned to a buying mode late in the firstquarter. IPSCO’s steel mill capacity is fully committed through the secondquarter and we have no scheduled outages in the second quarter. The pricingenvironment has improved on plate and wide coil however higher scrap costs willimpact margins.

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We expect high oil and gas prices to continue to drivehigh U.S. rig counts. However, due to spring break up, we expect second quarterOCTG sales volumes in Canada will be seasonally weaker than the first quarterwith improvement in the last half of the year. In addition, our spiral pipefacilities are now booked at full capacity through May 2009.

Excluding foreign exchangegains or losses and share price volatility, and assuming an effective tax rateof 33.5%, we forecast second quarter earnings to be in the range of $2.60 to$2.80 per diluted share.

**Financial Positionand Liquidity**

Cash at March 31, 2007 was $263.3 million,an increase of $228.9 million in the quarter. Net cash generated byoperating activities for the three months ended March 31, 2007 was $349.2 millioncompared to $120.1 million generated by operating activities for the sameperiod in 2006. This increase was primarily due to decreases in inventory of$84.1 million and accounts receivable of $47.1 million and anincrease in taxes payable of $62.8 million.

Capital expenditures in the first quarter of 2007 were$55.2 million, compared with $30.6 million in the same period in2006. Capital expenditures are anticipated to total approximately $300 millionin 2007. Some of the major expenditures in the quarter are related to thespiral mill line being installed at our Regina facility, Blytheville Heat TreatFacility, Montpelier Vacuum Degasser and the Mobile Reheat and Rolling Millupgrades.

In February 2007,IPSCO’s Board of Directors approved a quarterly cash dividend on the Company’scommon shares of CDN $0.20 per share, paid on March 30, 2007 tostockholders of record on March 15, 2007.

**Item 3.**                        Quantitativeand Qualitative Disclosures About Market Risk.

We are exposed to variousmarket risks, including commodity price risk, foreign currency risk andinterest rate risk. To manage the volatility related to these risks, we haveentered into various derivative contracts, the majority of which are settled incash. Such settlements have not had a significant effect on our liquidity inthe past, nor are they expected to be significant in the future. We do not usederivatives for speculative or trading purposes.

**Commodity PriceRisk**

IPSCO manages a portion ofour exposure to price risk related to natural gas purchases by using derivativefinancial instruments. Changes in the market value of these derivativeinstruments have a high correlation to changes in the spot price of naturalgas. Gains and losses from the use of these instruments are deferred inaccumulated other comprehensive incomeon the consolidated balance sheets and recognized into production costs in thesame period as the underlying transaction. At March 31, 2007, accumulatedother comprehensive income/loss includes $0.8 million in unrealizednet-of-tax losses****for the fair value of theseinstruments. A sensitivity analysis indicates that the reduction in the fairvalue of these instruments at March 31, 2007, due to hypothetical declinesof 10% and 25% in market prices of natural gas at that time would be $2.7 million and $6.7 million,respectively (March 31, 2006 - $4.2 million and $10.5 million,respectively). Any resulting changes in fair value would be recorded asadjustments to other comprehensive income, net of tax. Because theseinstruments are hedges, these hypothetical losses would be offset by thebenefit of lower prices paid for the natural gas used in the normal productioncycle.

**Interest Rate Risk**

Our outstanding debt is acombination of both fixed rate debt and variable rate debt. The variable rateportion of long-term debt is $597 million out of a total of $903 million.An increase of 1% in short term rates would decrease pretax income by $5.97 millionor alternatively a decrease of 1% in interest rates would increase pretaxincome by $5.97 million. Our investment practice is to invest in highlyliquid money market funds or securities with short remaining maturities. As aresult, changes in interest rates are not expected to have a significant impacton the value of these investments. As such, future changes in interest rateswill not have any impact on the value of cash equivalent 

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investmentshowever; changes in interest rates will impact interest expense due to variablerate debt within our debt structure. We have not engaged in interest swaps tomanage interest rate exposure.

**Foreign CurrencyRisk**

IPSCO is subject to theimpact of changes in exchange rates on revenues and operating costs, firmcommitments for capital expenditures and existing assets or liabilities(including certain inter-company balances), particularly changes in the valueof the U.S. dollar versus the Canadian dollar. At March 31, 2007, therewere no foreign exchange contracts outstanding.

**Item 4.**                        Controlsand Procedures.

**Evaluation ofDisclosure Controls and Procedures**

Management, under thesupervision of the President and Chief Executive Officer and Senior VicePresident and Chief Financial Officer, has evaluated the effectiveness of theCompany’s disclosure controls and procedures as of March 31, 2007. Basedon such evaluation, IPSCO’s President and Chief Executive Officer and SeniorVice President and Chief Financial Officer have concluded that the disclosurecontrols and procedures were effective as of March 31, 2007, and thatthere have been no significant changes in such controls and procedures, or inother factors, that could significantly affect these controls subsequent totheir evaluation date.

**Changes in InternalControl**

During the quarter ended March 31, 2007, theCompany has developed and implemented internal controls relating to the newreporting standards under FASB Interpretation No. 48.

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**PART II—OTHERINFORMATION**

**Item 1.**                        LegalProceedings.

There have been nomaterial changes in legal proceedings since the issuance of the Company’s Form 10-K.

**Item 1A.**                RiskFactors.

There have been nomaterial changes in the risk factors provided in Item 1A of Part 1 of theCompany’s Form 10-K for the year ended December 31, 2006.

**Item 2.**                        UnregisteredSales of Equity Securities and Use of Proceeds.

None.

**Item 3.**                        DefaultsUpon Senior Securities.

None.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders.

None.

**Item 5.**                        OtherInformation.

None.

**Item 6.**                        Exhibits.
| 2.2  |   | Arrangement Agreement dated as of May 3, 2007  among IPSCO Inc., SSAB Svenskt Stål AB and SSAB Canada Inc.  incorporated by reference to Exhibit 2.1 to Form 8-K filed  May 3, 2007 (the schedules and exhibits have been omitted pursuant to  Item 601(b)(2) of Regulation S-K). |   |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 31.1 |   | Certification of President and Chief Executive  Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                             |   |
| 31.2 |   | Certification of Senior Vice President and Chief  Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                |   |
| 32.1 |   | Certification  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                      |   |

 

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Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                        | **IPSCO Inc.**  (Registrant) |
|------------------------|------------------------------|
|                   | **By:**                      | **/s/ DAVID S. SUTHERLAND** |
| Date: May 4, 2007 |                         | David S. Sutherland |
|                   | * *                     | *President and Chief Executive Officer* |
|                   | **By:**                      | **/s/ VICKI L. AVRIL** |
| Date: May 4, 2007 |                         | Vicki L. Avril |
|                   | * *                     | *Senior Vice President and Chief Financial Officer* |

 

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